USHI Links In Mainland China

In 2003 Dominic Penaloza became the 40,132nd person to join the U.S. networking site LinkedIn. Not terribly remarkable for a site that now has 135 million users, but for Penaloza it was a lightbulb moment: I remember distinctly thinking this is something that should work in China. The concept of professional networking is so Chinese.

Fast-forward and Penaloza is now at the helm of Ushi.com, a Shanghai-based professional-networking site that launched in February 2010. It has 600,000 members, is growing by 100.000 a month and boasts a staff of 60. In September it closed a $3 million round of funding led by New York research firm Gerson Lehrman Group.

I think this is the right time to invest in a professional social network in China, says Yunli Lou, managing partner of Shanghais Milestone ­Capital Partners, who invested in Ushi.com out of her own pocket in both the most recent round and the earlier angel round. There are so many small-to-medium-size businesses in China and people switch jobs so much, and there is no pool or platform to find qualified people.

Penaloza, 41, started in private ­equity at a Hong Kong firm and later helped found World Friends, a social networking site that he ran while dividing his time between Tokyo and Hong Kong. Then in 2007 he had a chance encounter with Reid Hoffman, the founder of LinkedIn, on the long bus ride from Tokyo to Narita Airport. Thats when Penaloza, who is ethnically Chinese but grew up in Canada, decided to start a Chinese version of LinkedIn: It just seemed silly that there was no professional network for Chinese people that had a critical mass or any real momentum. It was too tempting to ignore such a large opportunity. So he teamed up with Zhang Yue, a former product director at Tianji.com, a social network.

With Zhangs technical skills and Penalozas management experience, they set out to build Ushithe name means outstanding professional in Mandarin. It began as an invitation-only network of 100 movers and shakers in China. Think partners at law firms, founders of venture capital firms (80% of Chinas leading VC firms have a presence on Ushi, it says) and media executives. Last July the two founders opened the site to the public.

Today Ushi may be benefiting from third- or fourth-mover advantage. The first wave of professional networking sites in China popped up right after LinkedIn launched, in 2003, and were mostly just copycat sites. And they were years ahead of the game. Penaloza says managing ones professional identity online is just now catching on in China.

He projects that Ushi will not only have millions of users by next year but that it will also be the one professional network with staying power. But how will that happen in a country that is skeptical, if not downright jittery, about using real names in ­networking? Ushis founders say theyll work on becoming a hot spot for recruiters, one of Linked­Ins main revenue sources. So far Ushi isnt making any moneyand revenue is tinybut that should change as it builds up its recruiting services. Ninety percent of CEOs in China say they have a recruiting problem, says Penaloza. There is a crisis of talent. There are simply not enough people with five to ten years of experience, who are bilingual, worked for a brand-name company and went to a good school.

Ushi will play matchmaker, ­generating revenue this year by allowing recruiters to mine the site for prospective hires. Penaloza says these recruiter licenses will be priced at the LinkedIn rate of $8,000 apiece. Thats a bargain for companies such as Intel, which reports it has saved millions of ­dollars in fees by recruiting senior managers through LinkedIn.

Whether companies will ante up remains to be seen. So far Goldman Sachs, McKinsey & Co., Sequoia Capital, Yum Brands, Taobao, Vancl, IBM, Dell and Zynga have posted openings on Ushi Jobs, a ­portal of 6,000 listings of well-paying ­positions, but the companies dont have to pay for those listings. Ushi practices what it preaches: Five of the last hires at the company were found on the site.

While Ushi bills itself as a straight-up professional networking site, it has a more robust ecosystem that allows users to go beyond just making virtual connections. For around $4 Ushi members can apply for a job that pays at least $18,800 a year. And sometimes those jobs come to members. Jian Baoji, a recruiter, was scouring different websites for a chief marketing executive at a materials company and found the ideal one on Ushi. Jian sent the prospective candidate a direct message and, after some back-and-forth, got him hired in July with a salary of $170,000. Chinas ­recruiting market is booming, and its all about recruiting knowledge workers, says Penaloza.

Thats why hes focused on attracting a certain kind of userolder (you have to be over 25 to join), with some work experience and educated. Ushi says 93% of its members have a college degree and 26% have an advanced ­degree.

The demographic that Penaloza is cultivating is a valuable commodity in China. Even with its small user baseother social networks in China have ten times as many membersUshi has attracted advertisers such as Citibank, Grey Goose vodka, Microsoft and Dell, which pay $23,500 for a two-to-three-month ­advertising campaign, he says. Advertisers are willing to pay for white-collar eyeballs.

In Ushis second round of venture capital funding every investor was re-uppingexcept for one new investor, Gerson. Ushi says other VC firms offered to make bigger investmentsthough no one is saying how large Gersons wasbut Penaloza and his team decided to go with the New York research firm. Gerson offered a more intriguing proposition: the opportunity for Ushis members to join Gersons global network of experts.

Theres an upside for each of the players: The experts found on Ushi get paid well by Gerson, Ushi gets paid by Gerson for giving Gerson access to its network, and Gerson builds its reputation in China. Lets say some hedge fund manager in New York wants to invest in a new coal mine in China and wants to talk to some experts before he makes a $50 million bet, explains Penaloza. He calls Gerson, and they find him three people who know a lot about the energy industry in China. Adds David Legg, head of international markets at Gerson and a Ushi board member: This allows us to add an instant inventory of people who ­understand business in China from an on-the-ground perspective.

Strange bedfellows? Perhaps. This is not a typical investment for us, says Legg. He calls it a unique strategic opportunity.

But even with all the bells and whistles, will Ushi be able to fend off competition from LinkedIn, its inspiration? While LinkedIn doesnt have an official presence in Chinathere is no Chinese-language versionit has 1 million registered Chinese users, and the company says it is keeping an eye on the Chinese market. Penaloza thinks its only a matter of time before LinkedIn officially enters China, but hes not worried.

Instead, he predicts a market split that parallels how Baidu and Google divide the search market, with Ushi being Baidu and maintaining 90% of the local market. Local means that for the average human resources or sales manager, they need to network with people who live in the same city. Its only the very elite who do a lot of global networking with friends in Madrid and Tokyo, and thats the niche I see LinkedIn filling.